Innovative Companies Demand Innovative Leaders

Forbes recently published our list of the world’s most innovative companies in which we ranked companies based upon their innovation premium. But why do some companies have a high innovation premium while others do not? During our study we learned that a leader’s everyday actions are one of the most powerful signals to their team and organization that innovation truly matters.

Dozens of senior executives at large organizations revealed to us in interviews that in most cases they did not feel personally responsible for coming up with innovations. They felt only a responsibility to “facilitate the process,” to make sure someone else in the company was doing it. But in the world’s most innovative companies, senior executives like Jeff Bezos (Amazon), Marc Benioff (salesforce.com), and A.G. Lafley (Procter & Gamble) did not just delegate innovation; they kept their own hands deep in the innovation process.

Leaders at companies with high innovation premiums, in fact, landed at about the 88th percentile on our Innovator’s DNA assessment, which measures the five skills of disruptive innovators: questioning, observing, networking, experimenting, and associational thinking. CEOs of average companies, in comparison, scored at about the 68th percentile. Because disruptive leaders excelled at the Innovator’s DNA skills, they valued the same skills in other people. So much so that others within the organization felt that reaching top executive positions required personal innovation capability. This expectation helped foster an innovation focus throughout the company.

Apple’s performance under Steve Jobs powerfully illustrates that point. During Jobs’ first tenure at Apple from 1980-1985, he was personally involved in innovation and helped the company reach an innovation premium of 37%. Jobs, in fact, got key ideas for the Macintosh computer (mouse and GUI) during his visit to Xerox PARC. He recalled “being shown a rudimentary graphical user interface. It was incomplete, some of it wasn’t even right, but the germ of the idea was there. Within ten minutes, it was so obvious that every computer would work this way someday.” Jobs was so impressed that he took his entire programming team on a tour of PARC and returned to Apple hell-bent on developing a personal computer that both incorporated and improved upon the technologies he and his team saw. Jobs assembled a team of brilliant engineers, gave them the needed resources, and infused the Macintosh team with a vision of what was possible. That’s what an innovative leader does.

In stark contrast, the executive team at Xerox lacked the discovery skills necessary to exploit technologies developed in their own company. As PARC scientist Larry Tesler observed, “After an hour looking at demos [Jobs and Apple’s programmers] understood our technology and what it meant more than any Xerox executive understood after years of showing it to them.” Jobs agreed with Tesler. “Basically they were copier heads that just had no clue about a computer or what it could do. And so they just grabbed defeat from the greatest victory in the computer industry. Xerox could have owned the entire computer industry today.” No wonder Tesler left PARC and joined Apple. Innovators want to work with other innovators.

Not surprisingly, during Jobs’ hiatus from 1985-1998, Apple’s innovation premium plummeted to an average of about 30%. Apple quit innovating and investors lost confidence in its ability to innovate and grow. When Jobs returned and restructured his senior management team with more discovery-driven capacity, Apple’s innovation engine ignited again. It took a few years to get things back on track, but from 2005-2009 Apple’s innovation premium jumped to 52%.

Similarly, Procter & Gamble performed well as an innovative company — 23% average innovation premium from 1985-2000 — before A.G. Lafley became CEO. But Lafley’s focus boosted P&G’s innovation capability, and during his tenure from 2001-2009 he delivered on average a 35% innovation premium. Lafley’s successor, Bob McDonald, carries on this innovation tradition, posting in 2011 a 33% premium and landing at the number 24 spot on our ranking of the most innovative companies. Lafley, McDonald, and other innovative leaders we studied, consciously set the example by modeling innovation behaviors to help make them matter to others.

As the data suggests, top executives who value innovation need to point their fingers not at others but themselves. They must lead the innovation charge by understanding how innovation works, improving their own discovery skills, and sharpening their ability to foster the innovation of others. Moreover, they must actively populate their organizations with enough discovery-driven innovators to make innovation a team game that translates into tangible and sustainable innovation premiums.

Jeff Dyer is the Horace Beesley Professor of Strategy at the Marriott School, Brigham Young University; Hal Gregersen is a professor of leadership at INSEAD; Clayton M. Christensen is the Kim B. Clark Professor of Business Administration at Harvard Business School and the world’s foremost authority on disruptive innovation. They are the authors of the The Innovator’s DNA. On Twitter: @Jeffrey_Dyer, @ClayChristensen, and @HalGregersen.

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